How do I create a partially transparent flag?
Well this is not too straightforward, especially if you would like a very realistic result. For more realism I would recommend using subsurface scattering to achieve such an effect.
I suggest you start off with translucency as GiantCowFilms suggested. Here is a simple configuration that you can start with:



(Image from Daccy, BlenderArtists)

PS: You would need a few separate passes (masks) as some of parts of that flag are more translucent than others and some are not at all...